ORDER
S. Kalyanam, Vice-President
1. This appeal is directed against the order of the Collector of Central Excise (Appeals), Madras dt. 29.6.1988.
2. Shri M.I. Shah, the learned Consultant submitted that in the present case the appellants were small scale industrial units opted for Modvat Credit from March 1986 and subsequently opted out of the Modvat Scheme on 12.9.1986. The appellants on 6.9.1986 received inputs under GP. 1 and filed a Modvat declaration that they were eligible for exemption notification. While the appellants were availing exemption, the appellants thereafter filed Modvat declaration in terms of Rule 57G on 22.9.1986 and on the very same day took credit after the receipt of the acknowledgement from the Assistant Collector of Central Excise. Proceedings were instituted against the appellants on the ground that the appellants were not eligible to take credit in the above circumstances in terms of Rule 57H, culminating in the impugned order.
3. Shri Shah, the learned Consultant for the appellants submitted that even though in terms of Rule 57H, a transitional provision, did not apply to the goods in question at the relevant point of time, and since the rule was amended subsequently in 1987 a liberal view could be taken. Apart from this it was urged that when the inputs were eligible to Modvat Credit when the inputs were lying in stock and when the appellants took the credit only after the receipt of the acknowledgement from the Assistant Collector of Central Excise, the Department may not have any objection to the appellants availing of the Modvat Credit when the appellants had conformed with the requirements in terms of Rule 57A of the Central Excise Rules, 1944. The learned Consultant therefore submitted that the impugned order may be set aside and the appeal allowed. He relied upon the decision of this Bench in the case of Bellary Steels & Alloys Ltd. v. Collector of Central Excise, .
4. Shri Murugandi, the learned DR submitted that reading of Rule 57H could not cover the inputs at the relevant time and left the matter to be decided in the light of Rule 57A in the light of the plea urged by Shri Shah.
5. We have considered the submissions made before us. It was not disputed that the inputs in question is eligible for Modvat Credit and were lying in stock with the appellants and the appellants also took Modvat credit only after filing the declaration and getting it acknowledged from the proper officer namely Assistant Collector of Central Excise. This would satisfy the requirements in terms of Rule 57H of Central Excise Rules, 1944. Keeping all these factors in mind and also keeping in mind the ratio of the ruling of the Bench in the case of Bellary Steels & Alloys Ltd. v. Collector of Central Excise, we are inclined to think that the appellants would be eligible to Modvat Credit and, we would like to refer to the observations of the Bench in above said case, which are as under:
We have considered the submissions made before us. It is not disputed that the inputs are duly paid and utilised in the end-product and are entitled to Modvat benefit. On the day when permission was accorded by the authorities on 29.4.1987 Rule 57H stood amended and read as follows:
Rule 57H Transitional provisions.–(1) Notwithstanding anything contained in Rule 57G, the Assistant Collector of Central Excise may allow credit of the duty paid on inputs received by a manufacturer immediately before obtaining the dated acknowledgement of the declaration made under the said rule if he is satisfied that
(i) such inputs are lying in stock or are received in the factory after filing the declaration made under Rule 57C1, or
(ii) …
The expression ‘immediately’ has been given a liberal interpretation by the Tribunal in a number of cases and the Tribunal has taken the view that that would not restrict to any time period of one month or 2 months but would cover all cases’ where the inputs are available immediately before obtaining the dated acknowledgement of the declaration made under Rule 57G provided other conditions under law were satisfied. In the present case in the factual background of the case when Rule 57H stood amended on the date when permission was accorded to the appellant, the appellant would become entitled to avail of Modvat credit, if the same is applied to him. This amendment is only procedural in nature and, therefore, in our view the authorities are not right in issuing the show cause notice under Rule 57-1 to reverse the Modvat credit taken by the appellant on the basis of the rule as it existed prior to 1.3.1987. In the facts and circumstances of the case, the Modvat Scheme has to be construed as a whole in the context of the facts of the present case and when all the necessary formalities such as the inputs having suffered duty and utilised in the end-product, filing of a declaration, etc. are all satisfied, it would not be proper or just to deny the appellant the benefit of the Modvat credit on the ground that the amended rule on 1.3.1987 would not be applicable to the appellant. When the authorities granted permission to the appellant to avail of Modvat credit the only rule that was in the statute book was the amended one dated 1.3.1987. Therefore, on consideration of all the above facts, we hold that the appellant would be eligible to take Modvat credit and in this view we set aside the impugned order and allow the appeal.
Assent per V.P. Gulati, Member (T)–I agree with my learned Brother that the benefit of Modvat credit has to be allowed in the present case as Rule 57H had been amended at the time when the appellant had made a request for permission to take the Modvat credit in respect of the inputs which had been received earlier. I, however, do not agree that the amendment to Rule 57H has to be taken to be only procedural in nature and, therefore, retrospective effect in respect of the same has to be allowed. Notwithstanding this the position that emerges in this case is that on the date when the appellant made the application and the date when the permission was granted Rule 57H stood amended and the benefit of Modvat credit could be given in respect of inputs which had been immediately received and were lying in stock before filing the declaration. The words ‘immediately received’ has been interpreted by this Bench to mean goods which were in existence in stock immediately before the filing of the declaration. What has to be seen is that when the permission for taking Modvat credit was sought for whether at that time the Rule permitted the taking of the Modvat credit. There is no dispute that the amended rule did permit that. The amended rule allowed taking of Modvat credit with reference to any date as such. The purpose of Rule 57H facilitating Modvat credit in respect of inputs received prior to the filing of the declaration was to ensure that the inputs which had suffered duty and which were to go into the manufacture of the specified finished product as notified under Rule 57A for Modvat purposes should be taken into reckoning to mitigate the cascading effect of duty on the finished goods, which is the purpose of the Modvat Scheme introduced. If the Revenue’s plea has to be accepted, then to get the Modvat credit in respect of the inputs which had been received earlier this purpose will be defeated. Looking at another way, to get the Modvat credit all that the assessee would have to do is to take out the goods which were already lying in stock from the factory and bring them back inside later under the cover of the same gate passes and the requirement of law of bringing in the goods during the currency of the amended Rule 57H provision would become fulfilled, and …after filing the declaration as required under Rule 57G. An interpretation which would lend itself to such mechanism to be resorted to by the assessee would serve nobody’s purpose. In view of this I hold that the appellant’s plea has to be allowed for the reason that the amended Rule 57H would be applicable as the goods can be taken to be lying in stock before the filing of declaration and, therefore, covered by the amended Rule 57H.
In the result the impugned order is set aside and the appeal allowed.
(Pronounced and dictated in the open Court) Sd/- Sd/- (S.L. Peeran) (S. Kalyanam) Member (J) Vice-President dt. 11.8.1995 dt. 26.6.1995 V.P. Gulati, Member (T)
6.1 observe that the eligibility to Modvat credit is to be determined basically under Rule 57A read with Rule 57G. Rule 57A provides for inputs in respect of which credit can be taken for specified finished products. There is no dispute that both the inputs and the finished products in the case of the appellants were duly notified under Rule 57A. The question that arises is whether the provisions of Rule 57G has been complied with. The relevant provisions of Rule 57G, for convenience of reference, is reproduced below:
57G. Procedure to be observed by the manufacturer–(1) Every manufacturer intending to take credit of the duty paid on inputs under Rule 57A, shall file a declaration with the Asstt. Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Asstt. Collector may require, and obtain a dated acknowledgement of the said declaration.
(2) A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him.
(Provided that no credit shall be taken unless the inputs are received in the factory under the cover of a Gate Pass, an AR-1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise & Customs Constituted under the Central Board of Revenue Act, 1963 (34 of 1963) in this behalf evidencing the payment of duty on such inputs.).
The basic requirements of this rule are that the appellants should have filed a declaration and obtained a dated acknowledgement of the said declaration before taking the credit of duty paid on the inputs received by him. This rule does not say at what point of time these inputs should have been received in the factory. It is only on reading of Rule 57H the intention of the framers in this regard can be read. The opening para of Rule 57H reads as under:
Notwithstanding anything contained in Rule 57G, the Asstt. Collector of Central Excise may allow credit of the duty paid on inputs received by a manufacturer immediately before obtaining the dated acknowledgement of the declaration made under the said rule if he is satisfied that….
On reading 57G and 57H together it could be argued that the Modvat credit under Rule 57G could be taken only where the inputs are received after the filing of the declaration and before obtaining the dated acknowledgement thereof and that in a contingency where the inputs have been received before the filing of the declaration & obtaining dated acknowledgement the provisions of Rule 57H will come into play. In this context it may be mentioned that in respect of the inputs lying in stock, before filing of the declaration where a person does not fall within the parameters of Rule 57G, all that he has to do is to take the inputs outside the factory arid bring them back inside the factory after filing the declaration. I have in this context in my separate order recorded in the case of Bellary Steels & Alloys Ltd, v. Collector of Central Excise, cited supra, observed as under:
The purpose of Rule 57H facilitating Modvat credit in respect of inputs received prior to the filing of the declaration was to ensure that the inputs which had suffered duty and which were to go into the manufacture of the specified finished product as notified under Rule 57A for Modvat purposes should be taken into reckoning to mitigate the cascading effect of duty on the finished goods, which is the purpose of the Modvat Scheme introduced. If the Revenue’s plea has to be accepted, then to get the Modvat credit in respect of the inputs which had been received earlier this purpose will be defeated. Looking at another way, to get the Modvat credit all that the assessee would have to do is to take out the goods which were already lying in stock from the factory and bring them back inside later under the cover of the same gate passes and the requirement of law of bringing in the goods during the currency of the amended Rule 57H provision would become fulfilled, and also of receipt of the same after filing the declaration as required under Rule 57G. An interpretation which would lend itself to such mechanism to be resorted to by the assessee would serve nobody’s purpose.
Reading of the rules and also taking note of the fact that Modvat Scheme is a beneficient piece of legislation and also keeping in mind the basic requirement of the rules that Modvat credit could be taken only after filing of the declaration and where the duty paid nature of the goods is established by documents required to be produced under Rule 57G, we hold that in the facts and circumstances of the case the appellants’ plea has to be allowed.